Apartment Opportunities on the Horizon

While rent rates will continue to fall in the short term, long-term demographic and the labor market trends remain favorable and the point to opportunities for the apartment industry in the coming years, according to Marcus & Millichap Research Services' National Apartment Outlook for January 2010.

The firm predicts that employers will add approximately 1 million jobs nationwide in 2010, primarily in the second half, with a more vigorous rate of growth expected in 2011 and 2012. Vacancy will edge lower to high 7 percent range, but asking rents will recede 1.7 percent, accompanied by a 3 percent drop in effective rents. The report attributes the decrease in rents to continuing weakness in metro areas hardest-hit by the housing crash. Significant rent growth will not resume in most markets until early 2011 as improvements in demand accelerate.

Falling NOIs and property prices have made new development economically impractical in many markets--development is expected to drop to 65,00 units in 2010, the lowest level since 1995, according to the report.The decrease in development could be a boon to existing apartments as a population surge over the next three years will drive vacancies lower and offer the opportunity to raise rents. In 2010, only one apartment will be built for every 15 people entering the prime renter demographic, aged 20 to 34, compared with an average ratio of 2.6 people for every new apartment in the first half of this decade. Adding to the strength, recession-stalled households that would have been created in 2008 and 2009 will begin to form in 2011 and 2012 as the economy builds momentum.

Source: Marcus & Millichap Research Services Apartment Outlook